Comments on: What type of entity should I form?

By: Tammy

Tammy — Fri, 19 Feb 2010 00:57:58 +0000

If an LLC wanted to form a subdivision for a specific project and have investors for the project alone, how would they go about doing that?

By: Yokum

Yokum — Sun, 31 Jan 2010 03:29:22 +0000

@cfoquest – A CA LLC can create multiple classes of ownership interests that mimic the rights of preferred stock. However, this is a custom document and require significant attorney time. In addition, holders of LLC membership interests subject to vesting in connection with services may file 83(b) elections.

By: Davidson

Davidson — Sun, 31 Jan 2010 03:17:04 +0000

@Yokum, thanks for such an in-depth explanation. You say that reincorporating to convert an LLC to a C corporation will incur additional legal and accounting expenses, but on what magnitude are we talking here? Thousands of dollars, tens of thousands of dollars, or hundreds of thousands of dollars? Obviously you can’t provide an exact figure, but a ballpark amount for a typical situation would be helpful.

To clarify why I’m asking, say I have a startup which is not taking any outside capital at the outset, but which may in the future and thus will require being a C corporation at that point. The relative cost between forming an LLC and a C corporation at the outset is (say) $1,000 vs. $2,000. At the beginning that $1,000 saved is very important for cashflow purposes. If it will only cost $5,000 down the road to convert the LLC to a C corporation, the $1,000 saved in the beginning could be more valuable than the $5,000 cost later. But if the cost is $75,000 later, it might not make as much sense to save the $1,000 up front.

By: cfoquest

cfoquest — Sat, 30 Jan 2010 11:22:15 +0000

Have start up. Thinking LLC is best; no VC exit is expected. Biggest opportunity of the Preferred owners is rights to liquidation and distributions. Question: can California LLC have multiple classes of stock (can it have preferred stock)? Thought so, but am getting conflicting advice.

Also, assuming LLC makes sense, can restricted stock structure work (can an employee make an 83(b) election??)

By: drewzerd

drewzerd — Wed, 16 Dec 2009 22:43:06 +0000

pdonovan- Thanks. I'm currently drafting an LLC operating agreement for a software company (non-VC funded) and would love to read your comments.

By: drewzerd

drewzerd — Wed, 16 Dec 2009 15:43:06 +0000

pdonovan- Thanks. I'm currently drafting an LLC operating agreement for a software company (non-VC funded) and would love to read your comments.

By: pdonovan

pdonovan — Sun, 01 Nov 2009 02:13:55 +0000

Hello Yokum/SCL and Others,

For initial non-VC deals, or ~90% of US tech start-ups outside the valley (?), I vote for the LLC.

I have reviewed the comments on this site and have additional references and comments for those interested.

By: Incorporation : Resources | Launch a company

Incorporation : Resources | Launch a company — Sun, 18 Oct 2009 15:03:55 +0000

[...] What type of entity should i form [...]

By: Smith

Smith — Wed, 20 May 2009 16:27:35 +0000

Great article! What entity would you suggest for a start-up clothing line?

By: Yokum

Yokum — Sat, 09 May 2009 19:13:51 +0000

@Adam – please go ask your accountant.